Shifting Patterns In Global Oil Demand

Global fuels demand will continue to grow over the next ten years according to our forecasts, though at a slower rate than seen in recent years. Improving vehicle efficiency will moderate passenger vehicle oil demand growth, though air travel, road freight and petrochemical demand will see an increase in use of oil.

Our long-term refined fuels demand forecasts indicate steady growth in oil demand over the next ten years, though the pace of demand growth is slowing down. The strongest demand will come from developing Asian markets, which will support demand for oil from vehicle fuels, shipping fuels, aviation and petrochemical feedstock.

That said, in our view, growing efficiencies across the transportation sector and particularly in the passenger vehicle sector, will see demand in the major markets of Europe and North America slip into decline. These efficiencies will gradually move into developing markets, when the newer technologies become more mainstream and cost competitive, slowing the pace of oil demand growth.

Fuels Demand Growing But Slowing

Global Refined Fuels Demand By Region (000b/d)

f=forecast. Source: BMI Research

According to an IEA breakdown of global oil consumption by sector, 26% of total global oil consumption was from the passenger vehicle sector in 2015. Around 56% of total oil consumption is used in the transport sector including road freight, shipping and aviation, while the remainder is mainly used in petrochemicals, agriculture, power and heating.

Errosion Of Oil Consumption Has A Long Way To Go

Oil Consumption By Sector, % 2015

* Other = Agriculture, bitumens, lubricants, etc. Source: IEA

Sectors Of Slowing Oil Demand

In our view, the greatest erosion in oil use will be in the power generation sector as countries increasingly switch away from oil to gas and renewables ( see 'Gas Outlook Positive On Policy, Oil To See Structural Decline', June 16). This however only represents around 6% of global demand, or around 5.5mn b/d. Road passenger vehicles, which make up over quarter of global oil demand (more than 23.0mn b/d), will be another area where demand will soften, though at a gradual pace.

Our Autos team still expects the global passenger vehicle fleet to grow, though at the same time efficiency is improving. In developed markets there is a deepening move to lower engine emissions, which generally means smaller size and more integrated battery power. Electric vehicles (EVs) currently make up less than 1% of car sales in Europe, the market seeing the most aggressive improvements in engine efficiency, and we maintain that this will have a greater impact on fuels demand than EVs over our 10-year forecast period ( see 'Electric Vehicles Pose Little Risk To Our Forecasts', March 14 2016).

Vehicle Fleet Growing, But Also In Efficiency

Global Passenger Vehicle Fleet, Units

f = BMI forecast. Source: BMI calculation

There is a growing trend of smaller engine vehicles being purchased in emerging markets, similar to that seen in Europe over the last 10-15 years. With more efficient engines and smaller engine sizes, even though automotive fleets will increase in number, the fuels demand growth will not match it as closely as in the past. Combined developed market and emerging market passenger vehicle fuels demand will still see growth, just far more marginal than over the previous ten years.

Gasoline Demand Growth Slowing

Global Gasoline Demand Growth By Decade From 1996 (000b/d)

f = BMI Forecast. Source: BMI Research

Sectors of Oil Growth

We are more positive on the outlook for oil demand from aviation (6%), road freight (18%) and petrochemical feedstock (12%). While both air and road transport are also seeing improved engine efficiency, both sectors are growing at a powerful rate and neither are as able to benefit as much from electrification due to the size and power needed. Liquid fuels will remain essential in these sectors.

Road freight is also an area of increasing fuel (and particularly diesel) demand globally. Internal freight traffic in most major economies is growing, while major initiatives, such as China's Belt and Road, will continue to improve trade in emerging markets ( see 'Belt And Road To Boost Global Trade', March 30).

Finally, petrochemical feedstock from oil is set to increase, largely driven by a growing middle class among major emerging markets. Greater demand for packaged foods, pharmaceutical products, plastic goods and building materials will see a greater proportion of oil used in the petrochemical sector ( see 'Evolving Lifestyles Shift Consumption Patterns, May 23 2016)